“More than 12 years ago, we had a bitter lesson about M&As. However, it seems that nobody remembers. At that time, the building material sector witnessed a big M&A deal.

Prime Group, No 1 in Vietnam and No 5 in the world in ceramic tile, with 24 subsidiaries, had to sell to the Thais at the price of VND5 trillion. Just after three years, the Thai buyer could take back the investment capital. Do you feel the pain? I do,” one email reads.

Many officials, economists and the public seemed to wake up about the weakening of Vietnamese enterprises and the possibility of being swallowed by foreign investors.

Forbes has estimated that 20 big M&A deals in the Vietnamese market have occurred in recent years. Investors from Thailand were involved in one third of the deals. The other buyers were from South Korea, Japan, Malaysia, Indonesia and the US. There were also Vietnamese names, such as Masan Group, Vinamilk and An Quy Hung.

The list of Thai tycoons named in Forbes’ list of 20 M&A biggest deals included Beverage (which spent $4.8 billion to acquire 53.59 billion Sabeco’s shares); Central Group ($1.14 billion, Big C); TCC Holdings ($800 million, Metro Vietnam); Siam City Cement ($524 million, Lagarge Holcim); SCG ($440 million, VCM); SCG ($290 million, Prime Group); Power Buy ($140 million, Nguyen Kim); and Saraburi ($100 million, Binh Minh Plastics).

Though M&As is a normal activity in a market economy, the figures deserve analysis. The majority of foreign invested enterprises (FIEs) in Vietnam are small and medium scale if considering capital, labor force and turnover. Nearly 83 percent of FIEs have less than VND100 billion in capital. About one fourth of FIEs use fewer than 10 workers and 57.4 percent have fewer than 50 workers.

In terms of revenue, nearly 25 percent of FIEs had less than VND3 billion and 77.8 percent less than VND100 billion in 2022.

Reports show that in 1986-2022, Vietnam attracted $438.7 billion of foreign direct investment (FDI), of which $274 billion has been disbursed. 

Unlike other regional countries such as Thailand, Indonesia, Malaysia and the Philippines, which attract large amounts of FDI and make outward investments, Vietnam’s outward investment is inconsiderable and it mostly receives an influx of investments. Localities in Vietnam attract investors by offering attractive incentives.

Foreign companies make investments in Vietnam because they hope they can find profits in the market. Meanwhile, Vietnam invites FDI because it wants to have capital, technology and export markets. FIEs now make up two-thirds of Vietnam’s total export value.

Vietnam has reaped fruit over the last 40 years by attracting FDI. Vietnam’s GDP per head reached $4,000 in 2022. Meanwhile, the country, with 100 million consumers and a rising economy, has become very attractive to foreign investors.

At first, attracting foreign capital was one of the important goals for Vietnam when inviting foreign investment. However, it is no longer top priority now. The public capital deposited at commercial banks has exceeded $500 billion. There is a large amount of precious metal and foreign currencies among people. Every year, Vietnam receives $20 billion worth of overseas remittances.

When inviting foreign investment now, Vietnam hopes this can help it access foreign high technologies. However, it is difficult work. Vietnamese enterprises even find it difficult to join foreign supply chains, even in the fields it has advantages in, such as agriculture, animal feed production, food and foodstuff, drinks and retail.

If calculating the ratio of FDI to GDP in 2020 in ASEAN, the figures were 54.4 percent for Thailand, 22.7 percent for Indonesia, 51.7 percent for Malaysia, 29.9 percent for the Philippines and 65.8 percent for Vietnam. 

For non-ASEAN areas, the figures were 13 percent for China, 16.3 percent for South Korea, 4.9 percent for Japan, 17.9 percent for India and 16.5 percent for Taiwan.

In terms of outward investment (by 2020), Thailand had invested $155.6 billion, Indonesia $88.2 billion, Malaysia $129.3 billion, and the Philippines $64 billion, but Vietnam only $11.5 billion. China had invested $2.352 trillion outwards and received $1.919 trillion worth of FDI.

Making a profit is the goal of investment. The 2021 White Book about enterprises showed that in 2019, the FDI sector had 18,762 enterprises, or 2.8 percent of total enterprises in the country, and employed 5.0 million workers (32.8 percent). In 2016-2019, FIEs had pre-tax profit of VND374.9 trillion (44.4 percent).

As such, the profit was just $16 billion and capital $274 billion, i.e. the return on equity was just six percent (pre-tax profit). Notably, 45.6 percent of FIEs took a loss.

The figures were 18.8 percent for state-owned enterprises (SOEs) and 48.8 percent for enterprises in general.

Why are there so many FIEs that don’t make a profit? The answer could be that they are eyeing long-term benefits rather than trying to make short-term profits. However, there are corporations with huge profits. Their annual profits could be many times higher than the amount of capital they bring to Vietnam.

Lan Anh